Page 102 - DMGT303_BANKING_AND_INSURANCE

Unit 5: Payment and Settlement System

Payments Done by the Banks for their own Transactions Notes
Ordinarily, the transactions among banks (not pertaining to customer transactions) would
be for large values. Hence, such transactions are called as large-value funds transfers. The
actual transfer of funds will take place through the accounts which the banks maintain
with the RBI. For this purpose, banks can give cheques drawn on their account maintained
with RBI to one another, which will then be processed through the clearing house.
Alternatively, they can also make use of large value payment system called as Real Time
Gross Settlement System where funds transfer takes place instantaneously, based on
electronic instructions just like EFT in the case of individuals and companies.

Did u know? EFT facility is available for transfer of funds between bank branches in about
15 major cities and towns across the country.
3. MICR Clearing: This is one of the automated clearing systems used by banks. Under this
system, specific type of paper is used for printing the cheque. The cheque conforms to
required specification as laid down and are having two white bands at the top and another
at the bottom. Between these bands, the details of the cheque are encoded with special
magnetic ink and that is how it has come to be known as MICR cheques i.e., magnetic ink
character recognition cheques. The machine with sophisticated software engaged for the
purpose captures the image of the cheque and enables automated clearing function. While
the Reserve Bank of India at the start facilitated the function, it has now given the
responsibility to undertake MICR on its behalf to leading banks of the country which are
capable of demonstrating the clearing function at certain centres.

5.5 Core Banking Solutions or Centralised Banking Solutions (CBS)

The revolution in the field of internet has brought in another banking product at the service of
the customer called as Core Banking Solutions or Centralised Banking Solutions wherein the
customers can transact business any banking branch of the country which is under the system.
Core Banking Solutions is a process that is conducted at a centralized environment, which
means that all the information is stored at the central server of the bank which is connected to
the branches through net working system. This makes withdrawal of funds or deposit of funds
or transaction of business anywhere in the country from a branch connected under CBS possible.

Example: Let us take two branches of XYZ bank one at Bangalore and the other at
Guwahati. It is assumed that these branches are connected to the central server through CBS
system. In this case, the customer of Guwahati branch can withdraw money from the Bangalore
branch without any hassle. Any banking transaction of the Guwahati branch customer can be
carried out at Bangalore in one go.

5.5.1 Cheque Truncation

Cheques are here to stay. They are still one of the widely used instruments. The chief reasons for
the use of cheque by common masses are that they do not require a computer or debit card at the
point of sale.
Post dating feature capability

Facility of dual signatures
Many people still distrust modern electronic modes of payment

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